Bank of Canada warns of threat from Big Data

Bank of Canada Senior Deputy Governor Carolyn Wilkins responds to a question during a news conference in Ottawa, Wednesday January 17, 2018. A top Bank of Canada official is warning about the risks related to the growing dominance of only a handful of big firms in the digital economy and, more specifically, their monopoly over user data.

The Bank of Canada is calling for tougher regulation to stop the spoils of innovation from being concentrated in the hands of a clutch of superstar tech giants.

The benefits of the growing global economy are being spread unevenly across society, leaving too many people behind, senior deputy governor Carolyn Wilkins said on Thursday in prepared remarks to a gathering of top officials from Group of Seven countries in Montebello, Que.

"We are not getting the full benefits of innovation if we leave market power unchecked," Ms. Wilkins warned.

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The world's five largest global technology companies have a market capitalization of US$3.5-trillion, or nearly a fifth the size of the entire U.S. economy, she pointed out. Those companies are Google parent Alphabet, Amazon, Apple, Facebook and Microsoft.

Too much market and pricing power in the hands of few companies raises concerns about monopolistic behaviour, she said. Ms. Wilkins also raised a red flag about the impact of too much big data – massive amounts of data collected and analyzed by computers – falling into the hands of a few powerful companies.

"Access to and control of user data could make some firms virtually unassailable," she pointed out. "They can easily drive out competition by combining their scale with innovative use of data to anticipate and meet evolving customer needs at a lower price, and sometimes for free."

Ms. Wilkins added that the complexity of algorithms used in data analytics could lead to "tacit collusion" between players – "price-fixing without the quiet glass of Scotch between commercial rivals," as she put it.

Combatting the problem may require modernizing anti-trust and competition laws, and policies, including more legal clarity around issues such as data privacy, information security and consumer rights, she said.

Ms. Wilkins's speech was out of character for the Bank of Canada, which has generally steered clear of giving governments policy advice under Governor Stephen Poloz.

"This is more of a government policy-focused speech than we would tend to expect from the Bank of Canada. It's certainly outside of their wheelhouse," remarked Toronto-Dominion Bank economist Brian DePratto. "But it also gives [the bank] more leeway in the discussion because they are not the ones holding the levers."

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Ms. Wilkins's advice comes as the federal Liberals are drafting their next budget – a document that's expected to focus on "inclusive growth."

And the advice they appear to be getting from the Bank of Canada is more of the "European-style interventionist bent, rather than a more laissez-faire approach," according to Mr. DePratto.

Ms. Wilkins is not alone in expressing concern about the robustness of Canada's competition and privacy protections in the face of rapid technological change. Federal Privacy Commissioner Daniel Therrien, for example, has called for an update of the country's privacy laws to give regulators more power and consumers more protection.

The Competition Bureau recently issued a draft bulletin that says regulators need to strike a balance between addressing the harmful effects of big data on competition and consumers against doing anything that might stifle innovation.

The intersection of Canada's competition laws and big data is also at the heart of a case that's poised to be heard by the Supreme Court of Canada. The case pits Canada's competition watchdog against the Toronto Real Estate Board in a fight over who should control data on home sales and real estate commissions.

Some critics worry that Canada is falling out of step with other jurisdictions, including the European Union, which is taking a much tougher line against the growing clout of mainly U.S.-based tech giants. In May, the EU will bring in much stiffer privacy protections as part of its new General Data Protection Regulation.

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Ms. Wilkins acknowledged that central banks don't have "the mandate or the tools" to influence technological progress or the distribution of income. But they do have a stake in promoting "strong and sustainable" growth.

"That is why we play an important advisory role and help shed light on some of the trade-offs at play," she explained.

Technological change and inequality are undermining trust in international co-operation on trade and financial-sector regulations, according to Ms. Wilkins.

Among other policy changes, Ms. Wilkins pointed to some experts who have suggested the need to regulate tech platforms as utilities as well as forcing companies to pay users for their data. "If user data are the primary source of monopoly rents in the digital age, how should we regulate who owns these data and how they are shared?" she asked.

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